Retaining and growing a customer base are the most frequently quoted hardships in running a printing business in today’s tough environment, according to Ascent Partners principal, Richard Rasmussen.
Question – From a business buyer’s perspective, what’s the most sought after part of the business they are looking to acquire? Answer - Customers and the growth potential of those customers.
So in the lead-up to selling a business, ideally, what you want provide is a client list that can be easily transferred and is capable of growth.
If you think about it, the prospective purchaser of your business is likely to have a lot of the required equipment – that’s half the problem, they have underutilised equipment, what they want is more sales to fill that equipment.
Client lists are worth good money, even if the firm is not making a profit. This is because in these instances purchasers will look more to the Gross Profit, rather than the Net Profit when purchasing a client list.
Even if the firm is in administration, the client list has value. Unfortunately many administrators don’t seem to get this concept. They don’t see the point in valuing it (how can a client list of a business that is in administration have any value?), know how to value it, nor what data the prospective purchasers need to buy it, or how to market it. It’s all about speed - of collecting the data, valuing the client list and approaching the right purchasers. As each day goes by, the value diminishes – the salespeople and customers flee (or that is the perception of the purchaser).
What sort of clients?
Obviously this depends on individual circumstances, but normally your clients want to be perceived by the buyers as easily transferrable to their business. In most cases these are direct clients, not ones where they are obtained through an intermediary such as a print management firm or a print broker. The reason for this is that commonly buyers perceive there is more risk that intermediary clients will be lost.
What spread of clients?
It is important, in order to maximise the value for your business that you have a good mix of clients, where no one client dominates. All the eggs in one basket = big risk. In general terms, the more risk buyers see in the possibility of losing clients, the less they will pay.
Who services the clients?
It is best you think now (well before the sale) of how you can ensure that clients are easily transferred to another entity. Would they want you servicing the clients or a sales representative or customer service representative?
In general terms, if you service the clients, then they would want to tie you in to continuing to service these clients after the sale has gone through. And, if the clients are serviced by an internal or external sales person, then they would want them to transfer to the new entity.
Again, it’s all about their perception of the risk of loss of clients. You clearly need to think about this well in advance, as it will affect your selling price, the way you exit, and perhaps how you are paid out (full amount up front or on an earn out formulae)
Build moats around your clients
Your top 10 clients are the most important. Have a look now at who they are. How long have they been dealing with you? What proportion of your business do they represent? Who services them? How can you build a moat around them to lock them in (as far as possible) into dealing with you?
You need to be honest with yourself. Ask yourself what is the chance of you losing a major client in the lead up to a business sale (perhaps 1-3 years out). And if you lost that client, what would be the effect to your bottom line? Who would you replace them with? Do you have a plan?
Unfortunately I’ve seen business values slashed as a result of a single lost client. This is precisely why purchasers are very wary of businesses where one or two clients dominate.
So how can you build moats around customers? Here are some examples:
- Offer Print management – such as on line ordering, viewing of previous jobs on the screen, monitoring stock, warehousing. These services make it harder for clients to change printers.
- Holding artwork, standing plates, cutting formes etc.
- Excellent customer service – they love what you do for them. They find it very easy to deal with you. You respond to quotes quickly, you follow up quotes, you measure your performance. You make it as hard as possible for them to change.
- Lock them into contracts – I know, contracts are hard to get, but you may be surprised at how many customers are contracted. Note, if you are able to achieve this you need to ensure that the contract is transferrable to the purchaser of your business.
- Offer unique selling propositions / value added services.
- Aim to retain the sales people, who have the relationship with the customer.
- Have relationships with your customer’s management (as far up the tree as possible).
- Consider selling more than print to them. i.e. if you have the relationship, look at what else they procure. The aim here is to make your firm the “go to” firm, who has the answers.
Niche markets
If you have a special niche, where you are known as the best or only one of a few suppliers, then that is obviously of value (less risk of loss, maybe an entry into that market for the acquiring printer). Of course that is on the proviso that the acquiring firm wants that niche, that the niche is attractive (i.e. is in growth), and that you can transfer your expertise.
Barriers to entry into your particular niche market will also build value. i.e. for a catalogue printer, the cost and IP required to enter the web market is generally seen as prohibitive.
Getting a high share of customer spend
“Share of customer” is what proportion of their expenditure you obtain. So if you define “media spend” as your measure, how much of their media spend do you currently get? For example, if you’re a stationery printer, maybe you’re only getting a small part of their expenditure, and are not a really highly valued supplier. Are there other parts of their “spend” that you can obtain? It’s certainly a worthwhile exercise to find out, because even if you don’t supply those services / products, it may be highly valuable information for the acquiring firm – remember what they also want to see in a customer is potential growth.
Providing more knowledge about your top 10 clients will usually engender more confidence in the purchaser.
Build systems
Having your business systemised (refer tip 5), whether it be a quoting system, a print management system, or a management information system, will help build value, especially where that system can be integrated into the purchaser’s existing business.
Many purchasers are looking for the extra value in the way your systems / IP can provide to their existing business.
Obviously you don’t want to install an expensive system just before you sell. Careful forward planning will ensure that the system you purchase / develop, will have well and truly paid for itself by the time you come to sell.
Have a sales and marketing plan
Do you have a client retention and acquisition plan? - A proven method to replace, retain and grow your client base? If you can show you have a transferrable system and proven methodology, then this will be very highly valued.
Take a long standing online printer for example – What would be the major risk to a purchaser if they were able to show they have a proven system, they have a proven method of acquiring clients (i.e. mail pieces or advertise in trade journals, they have 1300 customer service lines), retaining customers (i.e. proactive phone calls) and customer growth strategy (i.e. more services coming on line)? If it’s you or them (the proprietor) sitting in the chair, it doesn’t much matter, sales are proven to be growing, the customer base is building, and the business is sustainable and profitable.
I’m not saying on line businesses are the way to go; I only provide this example to illustrate the value of sales and marketing plan.
Your client list is a vital part of a business sale – in many circumstances it’s the only value purchasers see in your business. As detailed above, there is a lot that can be done to protect and build the data base.
As should have become apparent from the above discussion, the time to think about this is not at the point of sale, it is well in advance. It may well be that you need to change your business model to be able to maximise the value you get for your business.
Working through this process may also alert you to the fact that you have very little chance of keeping some top customers in the lead up to sale. If this is the case you had better have a very client acquisition strategy, because your business value will fall when you lose these clients. This may lead you the conclusion to exit early, when you still have a good client base.